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Saudi Arabia sees projects slowdown as office demand eases

New report says slowdown in demand has been met with a corresponding reduction in construction completions

By Staff writer

Wed 03 May 2017 01:57 PM

The slowdown in demand for commercial space in Saudi Arabia has been met with a corresponding reduction in construction completions in major cities, according to a new report.

Real estate consultancy Knight Frank said the slowdown in new supply reaching the market has in turn moderated any major decline in rental rates for Grade A buildings.

The report said Grade A buildings have maintained both achievable rental rates and occupancy levels over the past 12 months because of the historic lack of good quality space.

On the other hand, Grade B rents are expected to continue falling this year while downward pressure to Grade A rents will be offset in the short term by completion delays.

Stefan Burch, head of country, Saudi Arabia said: “The volatility in oil prices has been a stimulus for the government to adapt its economic strategy which has resulted in a series of wide-ranging reforms aimed at diversifying the country’s economy and encouraging a more productivity-led economic model.

"Saudi Arabia’s Vision 2030, and the ambitious targets set out in the National Transformation Plan (NTP), call for a shift from a state-led economic system to one driven by the private sector.”

Office space in Riyadh is dominated by government entities who remain the largest occupiers but this is likely to change in light of the government’s plan to cut public spending, Knight Frank said.

It added that demand is however expected to pick up in the long term in Riyadh as the kingdom looks to diversify its economy and accommodate its large young population entering the labour market.

Demand for office space in Jeddah remained subdued in the first quarter of 2017 following the slowdown in commercial activity in 2016, with the same trend expected to continue this year.

The total stock office space in 2016 was broadly flat year to year as no major projects were delivered.

In the Eastern Province, performance continued to be affected by the limited supply of completions throughout 2016 with market wide vacancy rates remaining stable at about 25 percent which is expected to increase to 30 percent over the coming 18 months as demand softens and additional space is delivered to the market.